Bill, our investor, located a commercial property with a 50% vacancy, generating a Net Operating Income (NOI) of $10,000, in an area which was about one year away from an improving market for rentals. The present owner (with poor property management as well as asset management skills) was strongly motivated to sell. Bill was concerned that the property needed a major infusion of cash to bring it to a physical state that would maximize rental income, and he only had $60,000 to invest. Needless to say, Bill needed to know up-front if the deal was even doable.
Bill met with his CCIM and began by asking if it was worth his getting
involved with the property? If so, he wanted the answers to the following
questions.
A. If he could turn the property around in 1 year and sold
it, what would his after-tax return and wealth accumulation be?
B. If
he refinanced EOY 1 and held the property, what would his after-tax return and
wealth accumulation be?
C. How would it affect his after-tax return
and wealth accumulation if he decided to sell EOY 2?
D. How would it
affect his after-tax return and wealth accumulation if he decided to refinance
EOY 2?
As the in-depth cash flow analysis in this report indicate, if properly structured, the property was certainly worth getting involved with and provided options for generating generous after tax returns. Let's take a look at the way the transaction was structured and the alternative strategies available to Bill. . . review the complete case study in our book;